Impasse on tax rates is big political hurdle

House Republicans’ hard line against higher tax rates for upper-income earners leaves re-elected President Barack Obama with a tough, core decision: Does he pick a fight and risk falling off a “ fiscal cliff” or does he rush to compromise and risk alienating liberal Democrats?

Or is there another way that will allow both sides to claim victory?

Obama has been silent since his victory speech early Wednesday morning, but Capitol Hill Republicans have filled the vacuum with vows to stand resolutely against any effort by the president to fulfill a campaign promise to raise the top two income-tax rates to Clinton-era levels.

“A ‘balanced’ approach isn’t balanced if it means higher tax rates on the small businesses that are key to getting our economy moving again,” House Speaker John Boehner, R-Ohio, said Wednesday. “Raising tax rates is unacceptable,” he declared Thursday on ABC. “Frankly, it couldn’t even pass the House. I’m not sure it could pass the Senate.”

A lot is at stake. A new Congressional Budget Office report Thursday predicted that the economy would fall into recession if there is a protracted impasse in Washington and the government falls off the fiscal cliff for the entire year. Though most Capitol-watchers think that long deadlock is unlikely, the analysts say such a scenario would cause a spike in the jobless rate to 9.1 percent by next fall.

The analysis says that the cliff — a combination of automatic tax increases and spending cuts — would cut the deficit by $503 billion through next September but that the fiscal austerity also would cause the economy to shrink by 0.5 percent next year and cost millions of jobs.

The new study estimates that the nation’s gross domestic product would grow by 2.2 percent next year if all Bush-era tax rates were extended and would expand by almost 3 percent if Obama’s 2-percentage- point payroll-tax cut and current jobless benefits for the long-term unemployed were extended as well.

Obama is to address the issue today, though he’s not expected to offer specifics immediately. His long-held position — repeatedly rejected by Republicans — is that tax rates on family income over $250,000 should jump back up to Clinton-era levels. Republicans say they’re willing to consider new tax revenue but only through drafting a new tax code that lowers rates and eliminates some deductions and wasteful tax breaks. And they’re insisting on cuts to Medicare, Medicaid and food stamps, known as entitlement programs in Washington-speak.